Limited re-rating catalysts.

We maintain our HOLD call with a revised TP of S$0.63.

As a Singapore-focused REIT and with competitive pressures in the Singapore hospitality market that are expected to persist, we believe there are limited re-rating catalysts for Far East Hospitality Trust (FEHT) in the near term.

This is despite the inherent long-term value given that FEHT is trading at c.0.65x P/BV.

Competitive pressure to persist.

With 6% increase in room supply in 2017 versus a projected 4% growth in visitor arrivals, we believe the Singapore hospitality market will remain under pressure. Thus, we have pencilled in a 4-5% fall in RevPAR for FEHT’s hotels and serviced residences. This in turn should translate to a 4% dip in FY17 DPU before a potential recovery from 2018 onwards when supply pressure ease.

Strong balance sheet.

Even though we are cautious on FEHT’s near-term earnings, there is significant upside to our forecast if FEHT deploys its strong balance sheet well.

FEHT’s gearing as at end-December 2016 stood at approximately 32% and its sponsor provides a clear and visible ROFR pipeline of seven properties.

Valuation

Key Risks to Our View

Rebound in demand and acquisitions. Our cautious stance on FEHT is premised on a supply imbalance in the Singapore hospitality market. However, a significant rebound in demand, absorbing the new room supply, and FEHT utilising its strong balance sheet, would lead to upside risks to our DPU estimates and TP.

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